Equities (shares) have outperformed property for the first time in years, as the FTSE 100 surpassed the Nationwide house-price index.
The FTSE 100 index rose by 16% compared with a 3% increase in residential property prices. It is expected that property values will rise by 0% and 3% this year.
In 2004, house price inflation was 12.7%. During 2005, prices grew by only £4,500, and the average house price of £157,250 is almost the same as in May last year. The housing market is expected to remain stable in 2006, although will still be expensive compared with average earnings.
It is believed that equities will continue to outperform cash, if inflation and interest rates remain stable.
Our view
As ever, all markets move in cycles and Equities are back in vogue. Expect the property cycle to return in around two years. In the meantime, remember that equities are volatile and are affected by World news, not just the strength of the UK economy.